Glaston interim report: 1 January – 30 September 2019

Insulating glass business growing strongly, challenges in heat treatment market

January–September 2019 in brief

  •  Orders received totalled 45.6 (21.7) million EUR.
  •  Net sales totalled 54.5 (23.0) million EUR.
  •  Comparable EBITA was 3.1 (1.6) million EUR, i.e. 5.7 (6.8) percent of net sales.
  •  The operating result (EBIT) was 0.0 (0.7) million EUR, i.e. -0.1 (3.2) percent of net sales.
  •  The comparable operating result (EBIT) was 2.0 (1.1) million EUR, i.e. 3.7 (4.7) percent of net sales.
  •  Items affecting comparability totalled -2.0 (-0.3) million EUR.
  •  The comparable earnings per share were 0.015 (0.014) EUR.
  •  Cash flow from business operations was 5.7 (-0.6) million EUR.

Review period January–September 2019 in brief

  •  Orders received totalled 113.0 (73.6) million EUR.
  •  The order book on 30 September 2019 was 79.1 (36.3) million EUR.
  •  Net sales totalled 133.7 (73.3) million EUR.
  •  Comparable EBITA was 7.3 (4.5) million EUR, i.e. 5.5 (6.2) percent of net sales.
  •  The operating result (EBIT) was -0.3 (2.6) million EUR.
  •  The comparable operating result (EBIT) was 4.6 (3.1) million EUR, i.e. 3.4 (4.2) percent of net sales.
  •  The comparable earnings per share were 0.014 (0.033) EUR.
  •  Items affecting comparability totalled -4.9 (-0.5) million EUR.
  •  Cash flow from business operations was 2.1 (-5.3) million EUR.
  •  Net interest-bearing debt totalled 41.0 (19.3) million EUR.

Pro Forma January–September 2019 in brief (comparables in brackets pro forma) 

  • Orders received grew by 3 percent and totaled 45.6 (44.2) million EUR.
  • Net sales grew by 15 percent to 54.5 (47.3) million EUR.
  • Comparable EBITA was 3.1 (3.5) million EUR, i.e. 5.7 (7.5) percent of net sales.  
  • The operating result (EBIT) was 0.0 (2.0) million EUR, i.e. -0.1 (4.3) percent of net sales.
  • The comparable operating result was 2.0 (2.4) million EUR, i.e. 3.7 (5.0) percent of net sales.
  • Items affecting comparability totalled -2.0 (-0.3) million EUR.

PRO FORMA JANUARY–SEPTEMBER 2019 IN BRIEF

  • Orders received declined by 12 percent and totaled 135.4 (153.3) million EUR.
  • The order book on 30 September 2019 was 79.1 (84.5) million EUR.
  • Net sales totalled 157.3 (156.9) million EUR.
  • Comparable EBITA was 9.6 (11.4) million EUR, i.e. 6.1 (7.3) percent of net sales.
  • The operating result (EBIT) was 1.2 (7.3) million EUR.
  • The comparable operating result (EBIT) was 6.1 (7.8) million EUR, i.e. 3.9 (5.0) percent of net sales.
  • Items affecting comparability totalled -4.9 (-0.5) million EUR.

Glaston’s outlook for 2019 unchanged
Glaston Corporation expects that 2019 comparable pro forma EBITA will be at the 2018 level or will improve slightly on it (2018 comparable pro forma EBITA 11.5 million EUR).

At the end of 2018, Bystronic glass had a significant number of orders that were recognized as revenue in the second and third quarters of 2019, thereby improving Bystronic glass’ actual net sales and profitability. Bystronic glass’ fourth quarter net sales and profitability will be significantly lower than in the early part of the year. The Glaston segment’s result is skewed towards the second half of the year.

President & CEO Arto Metsänen: a satisfactory quarter, despite weakness in heat treatment market
“Despite weak development of heat treatment machines market, the quarter was satisfactory. Our third-quarter net sales grew by 15 percent (pro forma) and the comparable EBITA margin was 5.7 percent of net sales. Total orders received also grew slightly.

“The slowdown in the heat treatment machines market has continued in 2019 and this was already the second quarter of a difficult market. Third-quarter orders received in the Heat Treatment Technologies product area decreased by nearly 30 percent from the corresponding period of the previous year. This was clearly below our expectations and that’s why we reacted to the situation rapidly. In early October, we initiated measures adjusting the Glaston segment’s operations to this lower-than-expected demand.

“At the same time, demand for insulating glass machines continued to be strong and the number of orders increased. The benefits of insulating glass, for example in improving the energy efficiency of buildings, are increasing demand for insulating glass machines. Demand for insulating glass and heat treatment machine services was good in the third quarter. The downturn in the automotive glass market continued, and at the beginning of October we also took steps to adjust the Automotive business to a low order book, among other things by introducing reduced working hours at Bystronic glass’ Bützberg location in Switzerland.

“The integration of Bystronic glass with Glaston has continued well and we have succeeded in combining our operations faster than expected. During the fall, we have, among other things, merged our sales offices in Singapore and China, eliminated overlapping functions, started integrating various IT and CRM- systems, and enabled the development of a common digital product platform. Thanks to the measures taken, we have already achieved annual cost savings of 2.3 million EUR. This is more than half of those annual cost synergies of around 4 million EUR that we expect to achieve by 2021.

“The product development of the Heliotrope project continues, and it is approaching a product that can be industrialized. The development has taken longer than Glaston has expected, mainly due to the complexity of the product’s technical features but also due to the financing of the project. Negotiations regarding financing, in which Glaston is considering participating, are currently on-going. Glaston’s investment would not be considerable. Heliotrope and other smart glass products are getting a lot of interest in the markets. As a result of the Heliotrope-cooperation Glaston has also found other interesting cooperation opportunities with among others other smart glass parties, and discussions are expected to lead to orders shortly.”

Uncertainties and factors affecting near future development
Glaston operates in a global market in which both political and economic instability arise. The company’s uncertainties in the near future are to a large extent linked to the development of global investment demand and, in some geographical areas, also to customers’ access to financing. Glaston continuously monitors the development outlook of the global economy and its impact on the development of the sector. If the demand situation of the sector deteriorates substantially, this will affect Glaston’s net sales and earnings with a 3–6-month delay.

In the third quarter of 2019, uncertainty continued, particularly in the European heat treatment machines market, and demand was weak. Visibility in the European heat treatment machines market is very short. Demand for insulating glass machines has continued to be good and this is also expected to continue into 2020. Challenges in the automotive glass market have continued and the same trend is expected to continue, at least in the short term.

Due to the project nature of the company’s business, the number of orders might fluctuate significantly from one quarter to the next, impacting the company net sales and result with a delay of approximately 3–6 months. The company’s after-sales services, which account for over 30 percent of the company’s net sales, are less cyclical and provide stability to the business.

Uncertainty associated with the timing of the Bystronic glass acquisition, progress with integration and conversion of financial reporting to harmonize with Glaston’s accounting principles might have an effect on the company’s development in 2019.

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